IOSCO’s Emerging Markets Committee Working Group #5 (WG#5) received a mandate on verifying the existence and the level of Performance Presentation Standards (PPS) on Collective Investment Schemes on Emerging Markets.

The mandate has been developed according to the following schedule:

• The mandate was approved (WG#5 meeting during IOSCO’s Annual Meeting in Lisbon, May, 1999)
• A questionnaire (Appendix 1) has been developed and approved for distribution to EMC countries (WG#5 meeting during IOSCO’s Emerging Markets Committee Meeting in New Delhi, September 1999)
• A first analysis of the answers to the questionnaire has been analyzed (WG#5 meeting during IOSCO’s Annual Meeting in Sidney, May, 2000)
• This final report has been approved (WG#5 meeting during IOSCO’s Emerging Markets Committee Meeting, Amman, November 2000)

One key point in carrying out this mandate was the fact that the Association for Investment Management and Research (AIMR) has already set a core of principles regarding PPS, namely the Global Investment Performance Standards (GIPS), reproduced in Appendix 2. WG#5, taking this previous work into consideration, decided to focus the mandate on such standards, rather than drafting its own recommendations.

The idea of the questionnaire was therefore, aimed at the following objectives:

• verifying if Emerging Markets Committee Countries actually set domestic standards on PPS
• Verifying on what issues (e.g.: minimum period of existence, volatility, etc.) such domestic PPS aimed at
• If the usage of GIPS as a recommendation for EMC countries would actually be adequate to individual countries.

Until March 2000 only 17 countries answered the questionnaire. It is important to stress that these answers constitute a very low sample (24%) compared to the 70 members of the Committee. Therefore, WG#5 in the May 2000 meeting decided to seek for more answers. However, only one additional member answered the questionnaire until October 2000, leading our total sample to 18 countries.

One of the 18 countries, however, answered that it was still designing its framework for mutual funds, and therefore, was not able to answer the questionnaire. Thus, our final sample that is going to be analyzed in this paper of 17 countries: Albania, Argentina, Bahamas, Brazil, Hungary, Latvia, Malaysia, Paraguay, Peru, Poland, Singapore, South Africa, Thailand, Tunisia, Turkey, Uruguay and Venezuela.

Again, not only is this sample low but also geographically concentrated. More than 1/3 of the sample (6 countries) is from South America. On the other hand, we may assume that many of the not answering countries are countries from new economies, which are still in a stage of developing the basic regulatory framework for mutual funds. Considering that the usage of PPS standards require a certain maturing of the mutual fund industry, It is likely to assume that PPS standards are still not addressed in the majority of the non-answering countries.

The next section will analyse the responses to each of the questions individually. Please note that to decimal rounding, some answers may sum 101% rather than 100%.

Usage of PPS standards is prescribed in 59% of the jurisdictions. Of those, 6% require its use only in the prospectuses, 29% on some advertisement and 24% in all advertisement material. In addition, 6% of the jurisdictions recommend the PPS usage. 12% do not address the issue at all, while 24% stated that other conditions apply. Jurisdictions that answered "other" in this question addressed the issue as following:

• regulation on the issue is being developed in one country
• the second country stated that the investment company should prepare annual and six-month reports of the Fund. In these reports, a comparison with the previous period shall be included.
• The third country answered that certain conditions related to the date of the authorization of the fund shall be observed for marketing.
• The last country answered that PPS standards depend on the type of the fund

Graphic and table of the answers to question 1 are found below:

The countries which answered that changes were being considered, mentioned the following areas for change: disclosure, standardisation on presentation results (mentioned by two countries), setting or improving advertisement rules (mentioned by four countries). Examples of this last item include code of advertising improvement and the introduction of a mandatory disclaimer in all advertisement mentioning the existence of the prospectus.

One country (Latvia) mentioned specifically that it wishes to incorporate GIPS into domestic legislation.

In the majority of countries (53%), PPS regulators are set by their corresponding national securities regulator (defined as SEC in the table below). PPS are set by Law in two countries (12%), while the same number of countries mentioned SROs as the entities responsible for setting such standards.

Performance is not set in three countries (one of those mentioned the fact that the manager set the standards). The "other" answer referred by Malaysia refers to the fact that the local securities commission regulates only issues on advertisement.

The standardisation of the performance period is not required in 41% of the countries and is required in 59% (10 countries). In addition, the minimum period of operation required before the fund presents its performance to the public ranges from 6 months to 5 years, and averages nearly one year and seven months.

However, the usage of such minimum period of operation varies: 12% require it is presented only in the prospectuses, 41% in all advertisement material and 6% in some types of regulated advertisement. This answer, as stated by turkey, refers to the fact that only advertisement including comparisons must comply with this rule.

This question was only answered by those who answered yes in question 4.1. This means 10 countries or 59% of the sample.

In this question, multiple answer was allowed. This means that a country which assigned both 6 months and 1 year period, require both information to be presented. 5 countries assigned the mandatory usage of one single period. In three of those, the period chose was one year.

4 countries actually require more than one period to be presented. In case of Singapore, this includes 3 month, 6 months, 1 year, 3 years and 10 year periods of performance. The "other" answer mentioned by Brazil refers to the fact that a last 6 months period (not necessarily July or December) is required for performance presentation purposes.

5 countries (50% of the 10 countries to which this section apply and 30% of the total sample) also address the mandatory comparison of the fund with an assigned market benchmark, which allows to potential and actual unitholders to see if the fund outperforms the market. The mandatory usage of graphs and tables as an assigned format has been mentioned by one country each.

This issue was addressed by 6 countries (60% of the 10 countries which answered question 4.1 and 35% of the total sample).

Of these countries, 2 stated that marketing is not allowed. Of the remaining four that allow marketing, 1 mentioned that a disclaimer must be provided and one stated that the advertisement. The remaining 2 mentioned both conditions should be fulfilled.

Note: According to the direction of the original questionnaire, this question was only supposed to be answered by countries answering yes to question 4.1. However, in order to allow comparison of the whole set of countries, those not answering were included as "not addressed".

This problem was addressed again by 6 countries (60% of the 10 countries which answered question 4.1 and 35% of the total sample).

Five countries require a minimum period operation before marketing is allowed, ranging from four months to one year. In three of those countries, an additional disclaimer is also required.

Note: According to the direction of the original questionnaire, this question was only supposed to be answered by countries answering yes to question 4.1. However, in order to allow comparison of the whole set of countries, those not answering were included as "not required"

However, only one country mentioned that it requires the mandatory presentation of volatility by its mutual funds. In Singapore, the presentation of standard deviation of the returns is required for 1, 3 and 5 year period.

The main reason that other countries may not address this issue is the fact that the concept it is rather difficult to understand by the average investor, which could be solved through investor education.

N/R= Not required

*The same period informed in question 4.2

SD= Standard Derivation

Benchmarking is the usage of a market index to compare with the fund. For 53% of the countries benchmarking is not required and for 23% it is only recommended.

The issue is addressed in other 23% (four countries). In one of those, the benchmark must be approved by the regulator, while in the remaining it is freely set by the fund.

One of those four countries mentioned that benchmarking must be used in the prospectus only, other that it is required in certain advertisement and two require the usage in all advertisement. If the benchmark changes, three countries require that a letter to the shareholders must be send in order to inform the change.

The totality of the countries requires disclosure of the management and performance fee. Except for one country, this situation is also applicable for entry fees.

15 jurisdictions (88%) require changes in the fees to be disclosed, either through newspapers, letter to the shareholders or other media, including a combination of those in 7 countries.

The performance fee, levied to the manager when a fund outperforms a benchmark, should be calculated net of other expenses. This was addressed by 6 countries (35%), which require single or multiple exclusion of other fees.

A management firm may actually manage more than one fund. Such company may only present performance of the best fund it manages, and in this case, the public does not have an idea on the average capability of the manager. When a manager is required to disclose all funds it manages within a certain category, this is called firm composites regulation.

In our sample, this issue is only regulated in Brazil, which requires all funds in the same category to be disclosed in advertisement material, all of them in a minimum period of six months statistics.

(2) Terminated portfolios must be disclosed until the last period they existed

Disclaimers are messages that warn consumers in advertising materials. They are required by 82% (14) of the countries. The most common one, used by 10 countries is "past results do not necessarily have relation with future results". In addition, in 4 countries funds must use the message "mutual funds may present negative results", while 2 countries use a warning stating that in very risky funds (high leveraged), an investment can result in losses above the initial investment, a situation that happen only in the derivatives markets.

Ten countries remembered other disclaimers, such as: "Before investing, investors should study the prospectus of the fund", "no projections on futures returns may be included", "if you are in doubt, contact your stockbroker, manager, counsel or attorney or other financial advisor", "this investment is not guaranteed by a guarantee fund or other type of insurance", "profits are not guaranteed", "the price of units may go up or down", "regulator’s supervision does not imply that it guarantees the investment", after return marketing: "return of shares that remain unrescued in the period", "any advertisement material should contain information on the investment risk", "where a unit or split is declared, investors are advised that following the distribution of additional or bonus units the net asset value per unit will be reduced".

(2) mutual funds may present negative results

(3) you may loose more than your investment in high leverage funds

This question aimed at detecting compliance level on each of the five GIPS sections, namely, input data, calculation, composite, disclosure and presentation (the requirements for compliance to those five sections are reproduced in Appendix 2). The idea was that countries did a self-evaluation of each of those sectors assigning the following values:

Twelve countries (70%) responded to this self-evaluation. The average compliance to GIPS was 41%, but it varied much among sections. While compliance to the input data section reached 75%, compliance to the composite section remained in 25%. Curiously, an important sector which is calculation has also a very low compliance level (27%).

2 countries (12) did not state an opinion on the issue, while 24% found GIPS was adequate to them. The vast majority (41%) think that GIPS is actually too detailed for their current stage of development. One the other hand, no countries considered GIPS incompatible, which sets room for further consideration of GIPS for these countries.

4 countries provided "other" as an answer, and this includes the need of deepening the studies on the issue, consideration on the excessive focus on composites given by GIPS, the fact that self-regulation should apply to some issues, and that GIPS are more adequate to liquid markets.

(2) Some parts are incompatible with the local legal framework

It is important to mention that the mutual fund industry in Emerging Markets is very incipient. ICI data (reproduced in appendix 3) stated that in 1999 a total of US$ 12.2 trillion were allocated in mutual funds in a sample of 36 countries in which the industry is developed.

Of this sample, US$ 7.3 trillion (60%) refer to the US mutual fund industry alone. Other US$ 3,5 trillion (29%) to the remaining IOSCO Technical Committee Members. US$ 985 (8%) billion come from countries belonging neither to the Technical not to the Emerging Markets Committee and US$ 364 (3%) billion from the 12 Emerging Market Committee members considered in the 36 countries sample.

Again, even within EMC countries, a group of countries concentrate the statistics, reflecting the difference of development within EMC countries. Brazil and Korea alone represent an industry of US$ 291 billion, that is, 80% of the total value of Emerging Countries in the statistics. As result, the remaining countries count for less than 0,5% of IFC statistics.

Under this scenario, we may conclude that most of EMC countries do not have a significant mutual fund industry; several of them are just drafting the respective basic legislation, and a significant part of the EMC members which did not answer the questionnaire come from new market economies belonging to eastern Europe and former USSR. In both situations the needs for the mutual fund industry development are more basic than drafting performance presentation standards. Such issue will probably appear in front of those countries some years from now when the industry achieves a certain grade of maturity.

Even though, we may come up to some conclusions to this work, as the answering countries represent a good sample of the most developed mutual fund industries within EMC.

The mandatory usage of PPS standards is required by the majority countries of our sample (59%), according to the results of the analysis to question 1 shown in the previous section. In addition, other 30% of the countries address the issue either as a recommendation or in other way.

The main regulator of PPS standards are the national securities regulators (52%), while SROs and the Law state for other 24% (results of question 3).

Some specific issues, such as the mandatory disclosure of fees is addressed by almost all regulators. Results of the analysis of question 7 show that 100% require disclosure of management and performance fees, while 94% to entry fees. The mandatory usage of disclaimers, according to the results shown to question 9, is also widely required (82%).

On the other hand, it is interesting to note that according to the conclusions of the analysis of questions 5 and 8, volatility and composite portfolios are issues seldomly addressed in EMC countries (one country has a legislation for each issue). As a matter of fact, a further step on the development on the industry is needed before regulators worry with such standards. Interesting to note that according to the results shown to question 2, 59% of the countries represented in this work are thinking on some type of development in regulation on PPS standards.

The usage of benchmarking (question 6) is quite split. 53% of the countries do not regulate the issue, while 24% do and other 24% recommend. Other split issue is the standardisation of performance presentation periods (question 4), required by 59% of the countries.

The core question of the adoption or not of AIMR GIPS standards by EMC countries are analysed in question 10. The usage of GIPS by EMC countries seem to be considered adequate by only 24% of the jurisdiction, while 41% consider such standards as too detailed for their level of development. In addition, compliance to GIPS varies a lot in relation to its 5 different sections. While the input data section has an average compliance of 75%, calculation and composite experience rates of compliance lower than 30%.

Thus, taking into consideration the different level of basic legal framework, culture, and development level of the mutual fund industry in EMC countries, WG#5 recommends, in conclusion, that GIPS should serve as a complementary guide in drafting or developing regulation in EMC countries. Such regulation should also take into account the other variables stated above.

Country ___________________________________________________________

Regulator's Name___________________________________________________

Name of the person responsible for the answers __________________________ _________________________________________________________________

E-mail or fax number of the person above ________________________________

( ) No

( ) Yes, as recommendation

( ) Yes, but only in the prospectus

( ) Yes, mandatory for some types of advertisements (please explain)

( ) Yes, standards are mandatory for all advertisement practices

( ) Other (please explain)

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

( ) No

( ) Yes (Please explain)

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

( ) Governmental Securities Regulator

( ) SRO

( ) Other_________________________________________________________

( ) No

( ) Yes, a minimum of _______ years performance is required for:

( ) the prospectus ( ) all advertisement ( ) certain advertisement

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

( ) monthly ( ) quarterly ( ) semi-annually ( ) annually ( ) ________

( ) compared to a benchmark ( ) through graphs ( ) through tables

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

( ) Not addressed

( ) Marketing is not allowed

( ) A disclaimer must be provided together with the advertisement

( ) Advertisement must be provided since the beginning of the fund

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

( ) Not addressed

( ) A minimum operational period of __________ is required prior the usage of the data in advertisement materials

( ) A disclaimer must be provided

_________________________________________________________________

_________________________________________________________________

( ) Not addressed

( ) mandatory usage of the standard deviation of the returns

( ) for the same period as the described in question 4.1

( ) for a period other than the above (please explain) ________________

( ) other methodology rather than the calculation of standard deviation

(please explain)

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

( ) Not addressed

( ) mandatory and must be approved by the regulator

( ) mandatory, but freely set by the fund

( ) not mandatory but recommendable

( ) Must be used in

( ) the prospectus ( ) all advertisement ( ) certain advertisement

( ) Changes in the benchmark are required to be disclosed through

( ) Newspaper ( ) letter to the shareholders ( ) other

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

( ) disclosure of entry and redemption fees must be clearly disclosed

( ) management and performance fees charges must be clearly disclosed

( ) changes of management or performance fees must be clearly disclosed through:

( ) Newspaper ( ) letter to the shareholders ( ) other__________________

( ) performance must be provided excluding management fee

( ) performance must be provided excluding performance fee

( ) performance must be provided excluding income and other taxes

( ) performance must be provided excluding other taxes

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

( ) Not addressed

( ) regulated

( ) a minimum history of _____ years is required

( ) all active portfolios must be disclosed for a determined category

( ) terminated portfolios must be disclosed until the last period they existed

( ) consistency is required

( ) other_______________________________________________________

_________________________________________________________________

_________________________________________________________________

( ) No

( ) Yes

( ) past results do not necessarily have relation with future results

( ) mutual funds may present negative results

( ) you may loose more than your investment in high leverage funds

( ) other

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

Part Compliance level

No less than half around half more than half total

I - Input Data ( ) ( ) ( ) ( ) ( )

II - Calculation ( ) ( ) ( ) ( ) ( )

III - Composite ( ) ( ) ( ) ( ) ( )

IV - Disclosure ( ) ( ) ( ) ( ) ( )

V - Presentation ( ) ( ) ( ) ( ) ( )

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

( ) adequate for your jurisdiction

( ) too detailed for the current stage of development of the local mutual

fund industry (please explain)

( ) some parts are incompatible with the legal framework (please explain)

( ) other (please explain)

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

GENERAL COMMENTS

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

GIPS is divided into five sections that reflect the basic elements involved in presenting performance information: Input Data, Calculation Methodology, Composite Construction, Disclosures, and Presentation and Reporting.

1. Input Data: Consistency of input data is critical to effective compliance with GIPS and establishes the foundation for full, fair, and comparable investment performance presentations. The Standards provide the blueprint for a firm to follow in constructing this foundation.

2. Calculation Methodology: Achieving comparability among investment management firms’ performance presentations requires uniformity in methods used to calculate returns. The Standards mandate the use of certain calculation methodologies (e.g., performance must be calculated using a time-weighted total-rate-of-return method).

3. Composite Construction: A composite is an aggregation of a number of portfolios into a single group that represents a particular investment objective or strategy. The composite return is the asset-weighted average of the performance results of all the portfolios in the composite. Creating meaningful, asset-weighted composites is critical to the fair presentation, consistency, and comparability of results over time and among firms.

4. Disclosures: Disclosures allow firms to elaborate on the raw numbers provided in the presentation and give the end user of the presentation the proper context in which to understand the performance results. To comply with GIPS, firms must disclose certain information about their performance presentation and the calculation methodology adopted by the firm. Although some disclosures are required of all firms, others are specific to certain circumstances and thus may not be applicable in all situations.

5. Presentation and Reporting: After constructing the composites, gathering the input data, calculating returns, and determining the necessary disclosures, the firm must incorporate this information in presentations based on the guidelines set out in GIPS for presenting the investment performance results. No finite set of guidelines can cover all potential situations or anticipate future developments in invest-ment industry structure, technology, products, or practices. When appropriate, firms have the responsibility to include in GIPS-compliant presentations information not covered by the Standards. The Standards for each section are divided between requirements, listed first in each section, and recommended guidelines. Firms must follow the required elements of GIPS to claim compliance with GIPS. Firms are strongly encouraged to adopt and implement the recommendations to ensure that the firm fully adheres to the spirit and intent of GIPS. An example of a GIPS-compliant presentation for a single composite is included in Appendix A. Although GIPS may be translated into many languages, if a discrepancy arises between the different versions of the standards, the English version of GIPS is controlling.

1.A. Requirements

1.A.1. All data and information necessary to support a firm’s performance presentation and to perform the required calculations must be captured and maintained.

1.A.2. Portfolio valuations must be based on market values (not cost basis or book values).

1.A.3. Portfolios must be valued at least quarterly. For periods beginning January 1, 2001, portfolios must be valued at least monthly. For periods beginning January 1, 2010, it is anticipated that firms will be required to value portfolios on the date of any external cash flow.

1.A.4. Firms must use trade-date accounting for periods beginning January 1, 2005.

1.A.5. Accrual accounting must be used for fixed-income securities and all other assets that accrue interest income.

1.A.6. Accrual accounting must be used for dividends (as of the ex dividend date) for periods beginning January 1, 2005.

1.B. Recommendations

1.B.1. Sources of exchange rates should be the same for the composite and the benchmark.

2.A. Requirements

2.A.1. Total return, including realized and unrealized gains plus income, must be used.

2.A.2. Time-weighted rates of return that ad-just for cash flows must be used. Periodic returns must be geometrically linked. Time-weighted rates of return that adjust for daily-weighted cash flows must be used for periods beginning January 1, 2005. Actual valuations at the time of external cash flows will likely be required for periods beginning

January 1, 2010.

2.A.3. In both the numerator and the denominator, the market values of fixed-in-come securities must include accrued income.

2.A.4. Composites must be asset weighted using beginning-of-period weightings or another method that reflects both beginning market value and cash flows.

2.A.5. Returns from cash and cash equiva-lents held in portfolios must be included in total-return calculations.

2.A.6. Performance must be calculated after the deduction of all trading expenses.

2.A.7. If a firm sets a minimum asset level for portfolios to be included in a composite, no portfolios below that asset level can be included in the composite.

2.B. Recommendations

2.B.1. Returns should be calculated net of non-reclaimable withholding taxes on dividends, interest, and capital gains. Reclaimable withholding taxes should be accrued.

2.B.2. Performance adjustments for external cash flows should be treated in a consistent manner. Significant cash flows (i.e., 10 percent of the portfolio or

greater) that distort performance (i.e., plus or minus 0.2 percent for the period) may require portfolio revaluation on the date of the cash flow (or after investment) and the geometric linking of subperiods. Actual valuations at the time of external cash flows will likely be required for periods beginning January 1, 2010.

3.A. Requirements

3.A.1. All actual fee-paying discretionary portfolios must be included in at least one composite.

3.A.2. Firm composites must be defined ac-cording to similar investment objectives and/or strategies.

3.A.3. Composites must include new port-folios on a timely and consistent basis after the portfolio comes under management—unless specifically mandated by the client.

3.A.4. Terminated portfolios must be includ-ed in the historical record of the appropriate composites up to the last full measurement period that the portfolio was under management

3.A.5. Portfolios must not be switched from one composite to another unless documented changes in client guidelines or the redefinition of the composite make switching appropriate. The historical record of the portfolio must remain with the appropriate composite.

3.A.6. Convertible and other hybrid securi-ties must be treated consistently across time and within composites.

3.A.7. Carve-out returns excluding cash can not be used to create a stand-alone composite. When a single asset class is carved out of a multiple-asset portfolio and the returns are presented as part of a single-asset composite, cash must be allocated to the carve-out returns and the allocation method must be disclosed. Beginning January 1, 2005, carve-out returns must not be included in single asset class composite returns unless the carve-outs are actually managed separately with their own cash allocations.

3.A.8. Composites must include only assets under management and may not link simulated or model portfolios with actual performance.

3.B. Recommendations

3.B.1. Separate composites should be created to reflect different levels of allowed asset exposure.

3.B.2. Unless the use of hedging is negligi-ble, portfolios that allow the use of hedging should be included in different composites from those that do not.

4.A. Requirements

The following disclosures are mandatory: 4.A.1. The definition of "firm" used to deter-mine the firm's total assets and firm-wide compliance.

4.A.2. Total firm assets for each period.

4.A.3. The availability of a complete list and description of all of the firm's composites.

4.A.4. If settlement-date valuation is used by the firm.

4.A.5. The minimum asset level, if any, be-

low which portfolios are not included in a composite.

4.A.6. The currency used to express perfor-mance.

4.A.7. The presence, use and, extent of lever-age or derivatives, including a description of the use, frequency and characteristics of the instruments sufficient to identify risks.

4.A.8. Whether performance results are cal-culated gross or net of investment management fees and other fees paid by the clients to the firm or to the firm’s affiliates.

4.A.9. Relevant details of the treatment of withholding tax on dividends, interest income, and capital gains. If using indexes that are net of taxes, firms must disclose the tax basis of the composite (e.g., Luxembourg based or U.S. based) versus that of the bench-mark.

4.A.10. For composites managed against spe-cific benchmarks, the percentage of the composites invested in countries or regions not included in the bench-mark.

4.A.11. Any known inconsistencies between the chosen source of exchange rates and those of the benchmark must be described and presented.

4.A.12. Whether the firm has included any non-fee-paying portfolios in composites and the percentage of composite assets that are non-fee-paying portfolios.

4.A.13. Whether the presentation conforms

with local laws and regulations that differ from GIPS requirements and the manner in which the local standards conflict with GIPS.

4.A.14. For any performance presented for periods prior to January 1, 2000, that does not comply with GIPS, the period of noncompliance and how the presentation is not in compliance with GIPS.

4.A.15. When a single asset class is carved out of a multiple-asset portfolio and the returns are presented as part of a single-asset composite, the method used to allocate cash to the carve-out returns.

4.B. Recommendations

The following disclosures are recommended:

4.B.1. The portfolio valuation sources and methods used by the firm.

4.B.2. The calculation method used by the firm.

4.B.3. When gross-of-fee performance is presented, the firm’s fee schedule(s) appropriate to the presentation.

4.B.4. When only net-of-fee performance is presented, the average weighted management and other applicable fees.

4.B.5. Any significant events within the firm (such as ownership or personnel changes) that would help a prospective client interpret the performance record.

5.A. Requirements

5.A.1. The following items must be reported: (a) At least five years of performance (or a record for the period since firm inception, if inception is less than five years) that is GIPS com-pliant. After presenting five years

of performance , firms must present additional annual performance up to 10 years. (For example, after a firm presents five years of compliant history, the firm must add an additional year of performance each year so that after five years of claiming compliance, the firm presents a 10-year performance record).

(b) Annual returns for all years.

(c) The number of portfolios and amount of assets in the composite and the percentage of the firm's total assets represented by the composite at the end of each period.

(d) A measure of the dispersion of individual component portfolio returns around the aggregate composite return.

(e) The standard Compliance Statement indicating firmwide compliance with GIPS.

(f) The composite creation date.

5.A.2. Firms may link non-GIPS-compliant performance to their compliant history so long as firms meet the disclosure requirements of Section 4 and no non-compliant performance is presented for periods after January 1, 2000. (For example, a firm that has been in existence since 1990 that wants to present its entire performance history and claim compliance as of January 1, 2000, must present performance history that meets the requirements of GIPS at least from January 1, 1995, and must meet the disclosure requirements of Section 4 for any non-compliant history prior to January 1, 1995.)

5.A.3. Performance for periods of less than one year must not be annualized.

5.A.4. Performance results of a past firm or affiliation can only be linked to or used to represent the historical record of a new firm or new affiliation if

(a) a change only in firm ownership or name occurs, or

(b) the firm has all of the supporting performance records to calculate the performance, substantially all the assets included in the composites transfer to the new firm, and the investment decision-making process remains substantially un-changed.

5.A.5. If a compliant firm acquires or is ac-quired by a non-compliant firm, the firms have one year to bring the non-compliant firm’s acquired assets into compliance.

5.A.6. If a composite is formed using single-asset carve-outs from multiple asset class composites, the presentation must include the following:

(a) a list of the underlying composites from which the carve-out was drawn, and

(b) the percentage of each composite the carve-out represents.

5.A.7. The total return for the benchmark (or

benchmarks) that reflects the investment strategy or mandate represented by the composite must be presented for the same periods for which the composite return is presented. If no benchmark is presented, the presentation must explain why no benchmark

is disclosed. If the firm changes the benchmark that is used for a given composite in the performance presentation, the firm must disclose both the date and the reasons for the change. If a custom benchmark or combination of multiple benchmarks is used, the firm must describe the benchmark creation and rebalancing process.

5.B. Recommendations

5.B.1. The following items should be included

in the composite presentation or disclosed as supplemental information:

(a) composite performance gross of investment management fees and custody fees and before taxes (except for non-reclaimable with holding taxes),

(b) cumulative returns for composite and benchmarks for all periods,

(c) equal-weighted means and median returns for each composite,

(d) volatility over time of the aggregate composite return, and

(e) inconsistencies among portfolios within a composite in the use of exchange rates.

5.B.2. Relevant risk measures—such as vola-tility, tracking error, beta, modified duration, etc.—should be presented along with total return for both bench-marks and composites.

The tables below show assets (in millions of U.S. dollars) of open-end funds for 36 different countries, where data is available, as of the end of March 31, 2000. Extracted from http://www.ici.org/facts_figures/intl_survey_3_00.html